The Energy Information Administration (EIA) has revised downward by 21% its projection for natural gas prices this year, citing abundant storage levels and prolific production.
In its Short-Term Energy Outlook for April, which was released Tuesday, the agency said it expects gas prices will average $2.51/MMBtu this year, down from its March projection of an average price of $3.17/MMBtu for the year (see Daily GPI, March 12). It said natural gas spot prices averaged $2.18/MMBtu at the Henry Hub in March, the lowest average month price since April 1999.
The weak gas prices were largely due to the growth in total marketed production last year, which rose by an estimated 4.8 Bcf/d (7.9%), the largest year-over-year volumetric increase in history, according to the EIA. “This strong growth was driven in large part by increases in shale production,” EIA said.
The agency said it expects the year-over-year production growth to continue this year, but at a “much lower rate than in 2011 as low prices reduce new drilling plans.” It projects that total marketed production will average 69.22 Bcf/d this year, up 3 Bcf/d from 2011.
Thanks to a warmer-than-usual winter and continuing strong shale development, gas storage is bulging at the seams. At the end of March, the official close of the winter heating season, working inventories totaled 2,479 Bcf, 887 Bcf more than last year’s level and 934 Bcf above the five-year average. In the last two decades, end-of-March inventories have not risen over 1,700 Bcf, and prior to that, rose above 2,100 Bcf only once, in 1983, EIA said.
Given the current inventory state, the agency expects natural gas storage levels at the end of October to set a new record high as well.
Natural gas demand this year will be primarily fueled by power generation, according to EIA. It predicts that gas consumption will average 69.6 Bcf/d this year, up 2.8 Bcf (4.2%) from 2011, and then climb to 70.54 Bcf/d in 2013. While it projects declines in residential and commercial gas use this year, the EIA sees consumption of gas in the electric power sector growing by about 16% — accounting for an average of 24.15 Bcf/d of total gas demand — due to the cost advantages of natural gas.
“Consumption in the electric power sector peaks in the third quarter…at 30.6 Bcf/d, when electricity demand for air conditioning is highest. This compares with 27.7 Bcf/d in the third quarter of 2011.”
In 2013, when closer-to-normal temperatures are predicted, EIA projects that gas demand in the residential, commercial and industrial sectors will rise, while there will be a “3.4% decline in power sector natural gas burn.”
Pipeline gross imports are likely to fall by 0.7 Bcf/d (7.2%) this year as domestic supply displaces Canadian sources, while pipeline gross exports grew by 1 Bcf/d last year driven by increased exports to Mexico, according to EIA. The gross exports “are expected to continue to grow, at a slower rate, in 2012 and 2013,” the agency said.
Expanding shale supplies in the United States will continue to take their toll on liquefied natural gas (LNG) imports this year. The EIA estimates that LNG imports will fall by 0.3 Bcf/d (28%) this year. It expects that an average of about 0.7 Bcf/d will arrive in the U.S. (mainly at the Everett LNG terminal in New England and the Elba Island terminal in Georgia) this year and next, either to fulfill long-term contract obligations or to take advantage of temporarily high local prices due to cold snaps and disruptions.
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